Gibraltar Industries (NASDAQ: ROCK) - CEO & CFO - Gabelli PVW Symposium

I'll give just a five-minute overview and then we'll jump right into Q&A and try to answer any questions anyone has. Thanks for having us, Simon. We're excited to be here. To talk a little bit about what we're doing, I'll give you a brief overview. We do have four segments. Our residential segment is our largest, and inside the residential segment we really focus on the repair piece versus new construction. We benefit from both, but about 85% of what we do is really repair. We're not in the remodel world. The reason I say that is a lot of what we do centers around the roof, and not many people remodel their roof; they fix the roof when they have to or they put a new roof on a new house. The other piece of our residential business, which is quite large, is a mail and package business. We are one of the largest suppliers of mailboxes and centralized mail systems for the US. That's a really interesting industry; it's got a natural moat built around it, believe it or not, and we've been in it for a long time. Then we have a small home improvement business that is really focused on awnings for outdoor use as well as some gutter protection. Then you jump into our renewables business. We've been in that for quite some time; it's our 10th year being in that space. We bought a company that started at the beginning of the industry, and that's been an interesting whirlwind the last few years with a lot of stuff going on in markets. I'm sure many of you are familiar with that. It's inherently a good business, and I think it's positioned well to participate going forward regardless of the rhetoric around what's going to happen with renewables, particularly solar. In reality, it's been a solid contributor over the last 20 years across a number of administrations and will continue to be. I remind people all the time: when Trump was in office in his first term, he's the only president that actually extended the ITC benefits and raised them for the solar industry. So we feel pretty good about that coming back in. Then you jump into our agtech business, which is a combination of things. It's a business that's 80 years in the making; we've owned it for again 10 years. It's a combination of things where we are designing, manufacturing, and installing large facilities to grow produce. These are highly automated, very high-tech facilities that we take from a piece of land all the way through to handing over the keys to a grower. You can imagine, in most of these facilities, if you've ever seen one or been in one, they are massive in size, anywhere from 100 to 300 acres. That's a number of football fields, or think of it in terms of one of our larger ones we built: the middle walkway is over a mile long. So they're good-sized projects, but inside that there are 30 subsystems that really have to interact together, and we actually design and build those and buy those out and integrate them. We do both new builds and retrofits, and just in 2024 started doing some services for these ongoing operations, so some recurring revenue is starting to percolate for us. It's a very private company-run industry; it's not new. People get it mixed up with things like vertical farming; this is not that. These are farmers that have been in it and are in the third generation, going back 30 or 40 years. I think our biggest customer has been at it for 40 years, started by his father, now he's run it for 40 years. These are very large companies, probably doing anywhere from a billion to a little bit more of annual revenue of food production. A lot of it's centered here in North America, mainly in Ontario, Canada, and they're shipping on average probably 750,000 truckloads a day into the US, mainly to supermarket retailers. So it really is an interesting business. There's a lot of money flowing into this space, I'd say the last four or five years in particular, now that Cox Communications is heavily engaged, Larry Ellison's group is heavily engaged, but these growers have been in it a long time. It's a well-established space, so we're excited about that because we know there's more people than food, and there's a way to be disruptive in terms of how you get food to the table. If you can do it in a good economic way, which these guys have proven you can, it's a good space. So that's our agtech business. We also do some other things in agtech: if you think about structures, whether it's a large greenhouse, we have over 100 different universities we're building ag research centers for. We have a car wash business, we do large greenhouses for plants and flowers, we do botanical gardens. Like I said, we've been in it a long time. Knowing how to grow things in a controlled environment is a core skill set, along with our structural engineering and ability to put things in the ground and do it well. And then lastly, our smallest group is really our infrastructure business. It's about $100 million. It was once part of a bigger group within Gibraltar; we called it our industrial and infrastructure business. We actually divested the industrial piece of that four or five years ago, and it really focuses around bridges. We do a lot of bearings and other structures that go into these bridges. We do a lot of seals, particularly for runways, both military and commercial airports. And then we have a fiber optic business where we're helping folks put fiber optics in the ground with a seal that we've developed that's patented and exclusive to us. So it's an interesting business. I would say in general, our biggest challenge has been renewables. If you look at our information, that's what you'll see. Our residential business has had a pretty good run, our infrastructure business has had a pretty good run, and our agtech business is really starting to spread its wings and will be a pretty strong contributor as we get into 2025. Renewables and market challenges have been there, they're still there, and we can talk about that through some Q&A. But I would say the portfolio today is much simpler than it was. It doesn't look like it on the surface, but we had 19 different operating companies five or six years ago; we have six today. And two of those groups, agtech and renewables, used to be one reporting segment; we split those out for focus. So really, those two split into two separate ones, and we have the infrastructure piece and we have residential. So I think you'll see us continue to simplify the portfolio, focus on the things that matter most, and look for those end markets that make sense for us. So I'll stop there, Simon, and take any questions, unless you have anything specifically you want me to touch on.

Yeah, that's a lot. I'll give you the 2028 strategy. No, it's a good question. I would say we think of the business; it's done relatively well, it's got a lot of runway in front of it, both top and bottom line. People ask us all the time about our margins, and I wouldn't say we're overly satisfied or impressed. I think we've gotten to a respectable level, but it gets harder as you get a little bit better there. Knowing what we know about the business and where we can take it, we feel like there's opportunity to grow the top line as well. Philosophically, the way we think about it is: let's not assume the market's going to help you every year, so how do you grow? That comes down to participation. I know that sounds pretty straightforward, but in this space we don't have what you would call high-tech product lines; that's not how this industry works. It's all about speed. Obviously you have to have the right price points and the right cost structure, but it is about speed and being local. People don't realize just how local you have to be to be successful. So you've got to break down the top 40 MSA markets in the US and figure out what you're going to do in that space. We've done a pretty good job the last few years of understanding where we are and where we're not, and that really sets the tone for how we're going to try to drive our participation. That sets our priorities about where we go next. Initially when I joined, it was about getting the business back on its feet, starting to perform like we thought it could, and part of it was just getting the right regions in focus and making the investments accordingly. Now we've transitioned to the top 40 MSAs, and that has really driven us the last couple of years. That drives everything from investments we're making either through organic or through acquisition; it drives our new products that we're developing or launching. When you think about this, because we don't study our roofs on our homes very closely, ultimately everything we do on the roof is stuff you tend not to see, whether it's ventilation for your attic or trims and flashings. But what you may not realize is you go city to city, those trims and flashings are uniquely different, whether it's color, size, material, thickness. So having something doing well in Boise, Idaho, doesn't necessarily mean that three hours away in Salt Lake it works, because it doesn't. So being as local as you can with the right 80/20 initiative and having service levels that are a day or less, almost will-call, allows you to serve your customer in a much faster way. But when you think about how the industry works, if rebates are negotiated at the national level, the branch managers have some autonomy to decide whether they go after that full rebate or trade that off for better service. Oftentimes you can manage your rebate agreed to down to a low level because you're providing somebody something that no one else can. That makes a big difference when you think about margin profile and what you can do. So the more local we get, the better off we are, the more profit share opportunity we have by actually managing that piece of the business. Secondly, the one thing that kills you in our industry is our stuff doesn't ship well long distances, so transportation is a big deal. When it starts going north of 10% of sales, that's a problem. How do you manage that? As you think about going more local and your 80/20 strategy for that specific market, your transportation plays a big role. That's another element of profitability opportunity for you as well. Then you sprinkle in new products that maybe others don't have that perform better, and that's an opportunity. So whether it's the top line or the bottom line, it all comes down to those three elements of the operating engine that you have to have really geared for the specific MSA. I would tell you that's a huge transition for us versus 2019 when we were just trying to figure out how to be more present in the big box retail space, which was 70% of our business. Fast forward to today, we flipped that: 30% of our business is really big box and 70% is through wholesale, which serves the majority of contractors in both repair and new construction. So we've done a lot of work on the channel, a lot of work on the products, a lot of work on getting closer to the market, and we still have a lot of gaps to fill in. That's the good news: we don't have the line share of everything, and I'm happy about that because if you can grow $300 million and still have a lot of runway in front of you, you don't necessarily need the market to be robust every year for you to drive growth. You just need to be in the right markets doing the right things and gain participation versus others. That's fundamentally how we think about residential. It's not rocket science; you're probably not impressed with the thought process per se, but it is fundamental in terms of how we think about it, and that's what drives a lot of what we do.

Yeah. For everyone, if you know the solar industry you'll get this; if you don't, there are really two segments: there's utility scale and there's what we call community solar or distributed generation. We live in that smaller-size field world, and they don't have the same competition. They have the same technology, but you don't compete with the same people, and the way you serve it is much different. A lot of what has happened in the industry has impacted everybody regardless of which segment you serve. Up until the new administration, the issues really revolved around either regulatory or legal, or just supply chain, and some combination of those three. For every individual item that came on the list of things to deal with, another one would come, and then people would start to see how those various things actually interacted with each other. That probably culminated in the biggest challenge the last couple of years: how our customers are navigating through the legal challenges being presented, how to utilize the IRA, how to navigate through Department of Commerce investigations, how to navigate through the UFLPA. A lot of things impacted the solar industry. I would say that we're finally, for the first time in the last three or four years, the Department of Commerce investigations have concluded. There were two of them; the first one's done, final rulings are out. The second one is also done, and the final rulings are coming out in April. That's causing a little bit of pause because people just need to know what the final cost will be, since they're really about the issue of importing panels. Effectively, you're going to tag some more tariffs or costs associated with bringing an imported panel in, and they just want to make sure those numbers are final. So it causes people to pause, but this is probably the first time in the last three years where we haven't had a large investigation going on or some other deadline that had to be hit by the industry. 2024 had two investigations that were interactive; we had the finishing up of the presidential proclamation that was a two-year window that you could bring panels in regardless of the DOC investigations, but that finished in June. And then if you did bring panels in in that two-year period, you had to get them installed by December 3rd. So you can imagine if you're a developer or a customer trying to figure out what is what and what we have to do by when, it was a little bit chaotic the last couple of years. I think that chaos piece is not 2025. So now everyone's concerned about what does 2025 look like now that there's a new administration. Are they going to slash the IRA? Are they going to slash renewables? I would suggest that for 2025, we don't really see much change at all. There could be some modifications, but you can't change the IRA overnight; it's going to have to go through some reconciliation bill. I would look forward towards the end of the year. But if you actually listen to the rhetoric, the new administration has not really said much about solar; they've talked about offshore wind and EVs. But also remind people that when Trump was in office in his first term, he's the only president that actually raised the ITC benefit and extended it before he left. There are a lot of red and blue states that are heavily invested in solar, and it is substantial relative to job creation and what it's doing. But I do think the administration is going to look for ways to lower overall energy costs because that's the single biggest input for inflation that everyone's dealing with, whether at home or at work. So I do think you'll see more balance, but that doesn't necessarily mean something's going to be taken away or thrown away. I think it will be modified. Our plan is assuming that things hold for now, and you'll start to see some things in 2026. But talking to customers, think about it: if you buy a piece of land and you're going to put solar on it and generate energy, that process can be anywhere from three to seven years. So whatever happens in between happens in between. Talking to one of our largest customers a couple of weeks ago, he said, 'Look, I've already spent $4 million on this project four years ago; I'm going to see it through.' That's the way it's always been in the space because it takes that long from the time you make that decision. It doesn't mean it's not disruptive, it doesn't mean it doesn't push things around, which is what we've seen. But the reality is people are not mass exiting solar because of the new administration. They've been more frustrated with the last three or four years than they probably are worried about the next couple. I'm sure it's case by case, but my message to everybody is I think the end market is solid. Texas is the largest producer of solar-generated energy; that's not going away. It plays a role, it's important, and we feel pretty good about it going forward. Hopefully we don't run into another set of self-inflicted wounds for the industry driven by ourselves, and we're not anticipating that being the case going forward, which I'm thankful for if it works the way we expect. So that's the latest on solar.

Agtech is going to play a pretty big role for us going forward. We talked in 2021 about what it could be in 2025, and I would say we're going to be moving in that direction in 2025 for sure. We got there a little differently than we thought, but there's been a lot of things the industries have navigated through. The momentum right now is pretty good, and we're seeing it in the strength of our orders. I talked about how we signed just in six weeks about $45 million in new orders. Actually, it was a much bigger number that we signed, but we only count and only talk about what we've signed and have backlog or deposits for; that's a discipline we've always had, we do that for solar as well. But I think about really what's in front of us, it's pretty interesting to see the investments that are going in and the folks that are investing. I think a lot of people have a perception this is a brand new industry, and it's not; it's four decades in the making. These growers are pumping 750,000 to a thousand trucks a day of produce into both US and Canadian supermarket retailers and have been doing it for a long time. These are not fly-by-night growers; they're making a billion dollars a year of revenue. So they've been around a long time. It's just the industry is very privately owned, so it's really hard to get comps, it's hard to do research. This is not vertical growing that you've probably read about; this is well-established farming in very high-tech facilities that we design from scratch based on what you're going to grow. We design and build and outsource a lot of the subsystems that go in. Depending on what you're going to grow, you might have 30 subsystems, but think of it as highly automated, a lot of AI, robotics, etc., that go into actually growing in these indoor environments. So you think about disrupting the food chain. In my early career, I spent a lot of time trying to figure out how to get food around the world as well as medicine in refrigerated containers. Really what this is doing is saying you don't really need that anymore because we're going to pick, pack, and ship in a day, and it's going to be fresh, and we're not going to have to put chemicals in it to hold shelf life for the next six weeks when it's on a container. So there's more to it than people might think, but the reality is there's more people than food, and I think the growers really understand that. That's why you start to see more and more money get attracted into that space. The other piece of the business that we do, and part of the acquisition that we did, is called Lane. We do a lot of structural engineering. Whether it's a large produce facility, a botanical garden, a car wash, a research facility for any one of our 100-plus universities we build for every year, large growers for plants and flowers that feed your nurseries, it's all structural engineering. Understanding subsystems and what you're growing and what you need to have success is what we grew up with the last 80 years. When we bought Lane, we bought the exact same skill set; we just added more in markets. So when you think about some of the trends going on in canopies, we do solar canopy business today. As an example, we just finished up the last phase of the Cincinnati Zoo, the second largest zoo in the country. We've completed the entire parking lot; it's now canopy solar, and it actually powers 95% of the zoo. That's where it gets its energy now. That's the kind of stuff we've been in for a long time. What Lane does is bring us some additional markets at a bigger scale. Yes, they do design, engineering, manufacturing, installation just like we have always done, but they've added in market segments for us. So it's a great way for us to leverage a skill set that's been around a long time, gets us into an end market that's growing mid-single digits, and there are some really interesting trends going on in that space. The market itself has a lot of room for us to play a bigger role as well. So we're excited about adding that to the family, leveraging some things we've been doing a long time, and there's as much synergy in both directions, which is also kind of cool when you do something like this. So yeah, we've been owners for about a week and a half and looking forward to a good run with the team; it's a great team.

Well, we still have some dollars left in our buyback program; we'll continue to buy back shares as it makes sense. But really, it's about deploying capital. I would simply say M&A. There's a lot more activity out there than there was a year ago or two years ago, so we're pretty excited about that, and you'll see us put some money to work. I would say stay tuned on that as things evolve for this year. Most of that focus is going to be residential and probably the agtech space. I'd suggest there'll be anywhere from deals that are $10 million EBITDA to maybe $100 million and everything in between. There are some really interesting things that frankly we've been working on for the last three years, so some of those things are now coming to market, and we're excited about the opportunity.

Yeah, look forward to it. And anyone in the audience who wants to have additional conversation, please feel free to reach out to us. Always happy to get you up to speed on what we're doing. Thank you.